Cherilyn Radbourne: Everyone is aware of the industry is facing a softer freight demand environment. So, I’d be curious whether there are any capital projects that you would contemplate accelerating to take advantage of lowering network activity levels and better condition the company for synergy capture once we get into an eventual recovery scenario.
John Brooks: I would say that, from a sourcing standpoint, maybe materials, we’ll look at that. But as far as actually executing capital projects uniquely in this industry, we’ve got a pretty full plate across our network, in line with the commitments we made to the STB, the Laredo bridge, the expansion in Bensenville, the sidings. So for us to have too much of an aggressive appetite, I don’t think would be the right thing to do because we certainly don’t want to size up and start laying a bunch of people off. I don’t think that’s a cycle we want to get into. So we’ll be opportunistic on material purchase perhaps, on steel perhaps, maybe looking at locomotives, we are looking at our locomotive fleet and developing overall long term strategy relative to our demands, our unique industry demands for the business growth as well as some of our ESG objectives and commitments.
So those two together may give us some chances. But the leverage – but, again, I think there’ll be opportunistic and not anything large scale.
Nadeem Velani: It’s helping some of our – to your point, the overall capital efficiency on what we can get done in terms of the fundamentals of changing tires and putting valves and getting access to the network. So that’s where we’re seeing the benefit overall, Cherilyn.
Operator: Our next question comes from Konark Gupta, Scotia Capital.
Konark Gupta: Just on Q4, John, I wanted to figure out mid-single digit RTM growth. Currently, you’re down about maybe flat to down in the first three weeks of October. Core potash are doing fine. They’re easy comps. But I think intermodal and grain are still a bit soft here. Do you expect some sort of rebound in grain intermodal as you head into November, December and any new contracts you can point to which might start there this month?
John Brooks: As I sit here today, actually, we’re slightly positive from an RTM perspective, Konark, in October. I do expect acceleration as we move into November and December. I think the grain outlook, not only Canadian grain, but also our US grain franchise, looks positive. As I said, frankly, the potash area couldn’t have been more troubling and I’m optimistic we’re going to gain some rhythm to close out the year with potash. And, again, we’re just really ramping. Met coal prices are high. Tech has really strong demand. We’re lapping that out. And so, we’ve got pretty strong growth in not only our met coal, but also some of our thermal coal in the US. And I do believe, as I said, you’ll continue to see add strategically volume to our 180/181. We’ll continue to ramp up some more ECP synergy wins and share wins. That all help sort of carry the day to get us to that low mid-single digits for our fourth quarter.
Keith Creel: I’d say the last bit of color I would add to that is don’t underestimate the power of revenue and RTM generation with the pent up demand that we have in Mexico. That’s obviously been subdued because of the lack of capacity and the operational challenges as we continue to free that railroad up. In fact, I think right now we’re at an all-time high GTM, RTM level in the Mexico franchise with no shortage of demand. So the automotive market, the metals market, those are two key economic drivers and demand drivers that the more capacity we free up, the more that we get to move.
Operator: Our next question comes from Walter Spracklin, RBC.
Walter Spracklin: So I wanted to actually come back to John on the West Coast port volumes and the strike that you had alluded to there. And the strike occurred in July and you cleared out your backlog pretty quickly. But the volume declines that continued quite substantially here until August and now September. And I’m just wondering if you’re concerned at all that, given some of this is discretionary into Vancouver, and certainly we saw [indiscernible] up in Prince Rupert, very strongly. This discretionary aspect of these volumes going to Chicago, have they found another route? Are you concerned that that’s going to be a while to come back? Do you have any view on how long it comes back? And is Mexico enough of an offset? When you’re looking at those port volumes, they’re off the charts for Mexico, which is great, into September?
And is that enough to offset? If there is some more, let’s call it, structural impact from this strike that happens in Vancouver? Can you entirely offset that by Mexico? Or is it just not big enough to offset that kind of decline, if it were to continue?
John Brooks: Maybe to answer that question, first of all, I think that’s a fair call out. No, we expect growth at Lázaro. And I said I’m excited about the future of what we can do at that port, but it’s [Technical Difficulty] to ramp that up. So that is not a one for one by any means. I do believe, structurally, there’s been somewhat of a change on the West Coast ports. By far, and you just look at our train lanes and where our import volume is going, it’s all domestic Canada. And we’ve got very little volume going into the US. I think it’ll be a function of two things. One is how quickly this market actually does rebound. I just had my team visiting all the steamship carriers over in Asia and also in Europe. And they didn’t paint a very bright picture.
Certainly, it’s going to be through 2024 as we see that ramp up. And then, we’ll have to watch. Certainly, there’s a reason why Vancouver and Prince Rupert, and that had success. We have port fluidity, we have some economic advantages. As things tighten back up and as the volume improves in LA Long Beach, that is really what will be the tell on if you see that freight moves back up there. But in the meantime, I can tell you we’re focused on the business that we’re handling within domestic Canada. And we are laser focused on how we grow this and leverage that port with a ton of capacity down at Lázaro. And again, it won’t be a one for one offset. But I’m confident we will grow domestically into Mexico and also into that Texas market.
Keith Creel: I think a very encouraging comment about the port of Lázaro, we just had a trade mission, actually the governor of Michoacán came up in that with John and myself and the team two weeks ago in Kansas City. So that’s a local government, the state governor that is motivated for economic growth. He understands the potential that Lázaro has. And I can tell you this, historically, KCS had challenges. I think, structurally, perhaps, they didn’t go deep into the US and have an opportunity to provide competitive interline line rates to West Coast alternative. That’s not the case. Now we do. And I think the other challenge was the reliability of the gateway. There was a lot of issues with the teacher strikes, with blockades.
I can tell you that governor was proud to tell us the day het met with us two weeks ago, that was day 702. He is committed to keeping that track open. He is committed to growth over that port. And not just that port, there are many other products, once you create the ecosystem, and the transportation, the reliable trains back and forth to take products that are growing in that state that are consumed in the Midwest and consumed in parts of Canada that this new reefer ecosystem we’re creating can benefit from and serve. So more to come on that. Again, does it ever replace all of it? No, but it’s certainly a unique growth opportunity for us coming from Mexico both on the domestic moves, as well as leveraging the international opportunity. From Mexico, both of them domestic news, as well as leveraging the international opportunity.
Operator: Our next question comes from Ken Hoexter, Bank of America.
